3 Big Takeaways From Microsoft's Acquiring of GitHub

It took 85 million projects and 27 million users for GitHub to get got.

Microsoft CEO Satya Nadella just announced he is buying the "motherload" of software repositories, GitHub. The strike price is $7.5 billion in stock on a company used by 27 million developers.

Open is now the new closed, Microsoft style

"Our business strategy is to have an open platform and an open community," Nadella said in an interview quoted by TheWall Street Journal. Chris Wanstrath, the GitHub co-founder, echoed that sentiment in a blog post about the acquisition. "Git is far and away the most popular version control system, clouds are mostly computers, and Microsoft is the most active organization on GitHub in the world. Their VS Code project alone is beloved by millions of developers, entirely open source, and built using GitHub's Electron platform. Beyond that, today major enterprises regularly embrace open source," he wrote.

27 million fresh users for Microsoft's mega cloud

This acquisition of the largest code repository site in the world--with some 85 million projects and 27 million users--points to three clear takeaways.

1) Simple, helpful business-to-business tools build value, especially in a hypergrowth niche like developer tools. This exit will boost implied business valuation on all developer-tool business models with strong user growth. For every year of the 10 years it was in business, GitHub created $750 million of value. GitHub got to scale when it raised $100 million from Andreessen Horowitz in its Series A at a $750 million post-money valuation. Now, a16z stands to make roughly a billion on the deal.

2) It wasn't always easy to see that value. In 2014, for example, the company came under fire for sexual harassment and one of its founders resigned. Later, it had to raise debt to stay afloat. Hard to tell how those investors made out at this point, but Wanstrath says he'll be working for Microsoft as the deal closes later this year. As the dust settles, the people who saw it early--like a16z--were rewarded for their foresight and patience. Early investors making more money is a longstanding trend, and it's at odds with the growth and recent popularity of mega-size, later-stage VC funds.

3) Microsoft's cloud dominance grows. The tech multinationals like Google, Amazon, Facebook, and Microsoft are always competing for access to a larger share of our wallets. By bolting on a big front door--in this case, the developers' door--Microsoft continues to advance its lead in its cloud revenue acquisition, and it's already over $6 billion a quarter. In the last three quarters, it has consistently beat Amazon and IBM. GitHub should help Microsoft widen its margins and build an even more defensible moat around cloud services. Now with GitHub providing seamless access to the earliest developer projects, its ability to "look down the road" and foresee other opportunities grows too.